What You Should Know About Ripple (XRP)

Co-founded by Chris Larsen and Jed McCaleb, who also founded the now defunct MtGox, Ripple is a real-time gross settlement system (RTGS) which has remained highly controversial within the cryptocurrency community since its release in 2012. Some argue that Ripple is even older than Bitcoin since the precursor to Ripple, Ripplepay, was first conceived by Ryan Fugger in 2004.

Strictly speaking, Ripple's XRP is not a cryptocurrency but a digital currency. Ripple is not merely known for its digital currency either. It's a payment protocol – Ripple Transaction Protocol (RTXP), which functions as a ramp for trade and transfer of various forms of currencies, both fiat and cryptocurrencies, and digital goods.

Although often compared and contrasted with Bitcoin, Ripple can be best described as Paypal based on the principles of blockchain as it seeks to leverage the security afforded by blockchain to facilitate global interbank transactions.

Ripple Transaction Protocol (RTXP)

RTXP comprises a set of rules governing the transfer of money and assets between various payment gateways to enable transactions between two parties from anywhere in the world. Gateways are intermediaries able to receive and send currencies and digital goods via the Ripple network. The protocol enables gateways to allow their customers to use Ripple's service, which facilitates seamless interbank transactions.

It should be noted that these gateways which perform the function of middlemen within the Ripple ecosystem expose users in the network to counterparty risk similar to conventional banking system, with only Ripple's native currency, XRP being exempt from counterparty risk. Ripple protocol's advantage is its ability to process near-instant transactions across borders for a mere fraction of the fee.

Gateways

Gateways are fundamental to the way Ripple operates. These can be banks, marketplaces and financial institutions that have incorporated the Ripple protocol in their system. Gateways provide a way for money and other forms of value to move in and out of the XRP Ledger.

Alice can pay Bob by simply depositing a supported currency at Gateway A and notify Bob to redeem equivalent value in his preferred currency at Gateway B.

Consensus

Unlike Bitcoin, which uses proof-of-work (PoW) algorithm verify transactions, Ripple employs a distributed ledger which is updated by a network of nodes which validate transactions.

Although described as a decentralized network, these validating nodes are operated by Ripple and payment gateways in the network. A new ledger is created every 4 seconds when a set of transactions are validated by a supermajority of peer nodes.

XRP’s distribution is also controversial for being 100% pre-mined, meaning that all 100 billion coins that will ever exist were created in the genesis block with the Ripple organization holding approximately 60% of the total supply which will be released over time.

Reception

While banks and other financial services have been receptive of Ripple’s ability to process faster, cross-border transactions compared to conventional means, the cryptocurrency community takes an askant view of Ripple and considers the protocol centralized and unfaithful to the blockchain paradigm.